b. Explain why it might still be more efficient on a risk/reward basis to invest internationally rather than only domestically in the long run. The HFS Trustees have decided to invest in non-U.S. equity markets and have hired Jaco Hind, a specialist manager, to implement this decision. He has recommended that an unhedged equities position be taken in Japan, providing the following comment and the table data to support his views: Appreciation of a foreign currency increases the returns to a U.S. dollar investor. Since appreciation of the Yen from 100/$U.S. to 98/$U.S. is expected, the Japanese stock position should not be hedged

Market Rates and Hind's Expectations
				U.S.	Japan
Spot rate (yen per $U.S.)				n/a	100
Hind's 12-month currency forecast (yen per $U.S.)				n/a	98
1-year Eurocurrency rate (% per annum)				6.00	0.80
Hind's 1-year inflation forecast (% per annum)				3.00	0.50

Assume that the investment horizon is one year and that there are not costs associated with currency hedging.